Negative Gearing Changes Are Now Being Blamed for Higher Rents
Why a tax change aimed at helping home buyers could put more pressure on renters. Negative gearing is a tax rule that allows property investors to deduct losses from an investment property against other taxable income. If the interest and other costs of owning a property are higher than the rent it brings in, the investor can use that loss to reduce their taxable income.
The government has changed this from July 1, 2027. Investors buying established residential property after May 12, 2026, will no longer be able to use those losses against their salary or other non-property income.
New builds will still qualify, and properties bought before the cutoff date are protected under the old rules.
The idea is to make existing homes less attractive to investors and encourage more investment into new housing.
But there is a concern on the other side of the argument. Investors also provide a large share of Australia's rental housing. If fewer people buy investment properties, fewer rental properties may be added to the market.
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The new modelling is not good news for renters
New modelling released this week, commissioned by property and construction industry groups, estimates that the government’s housing changes could reduce new dwelling starts by 10,700 between 2026–27 and 2029–30.
It also estimates that rents could be around $10 a week higher as a result of the combined measures.
It is worth being clear that this 10,700 figure is for the whole package of changes together, not negative gearing on its own. It covers the negative gearing changes, the capital gains tax changes, and the ban on super funds borrowing to buy residential property. Negative gearing is the biggest single piece, but it is not the only one in that number.
That is quite different from the government’s own estimate. Treasury previously estimated the negative gearing changes would increase median rents by around $2 a week.
Neither figure is a rent increase that has already happened. The main changes do not start until July 2027, so these are estimates of what could happen as the rules work through the market.
The difference between the two estimates is quite large, so I would be careful about presenting the $10 figure as a fact. It is also worth remembering this modelling comes from industry groups representing builders and agents, so it is one view, not a settled number.
If fewer investors buy rental properties and fewer new homes are built, there will be fewer homes available to rent.
Why would a tax change affect rent?
A large part of Australia’s rental market is made up of individual property investors.
They buy houses and apartments and rent them to people who do not own a home.
If the tax changes make an investment less attractive, some investors will decide not to buy. Others may choose a new property instead, while some may decide property is no longer worth the cost and risk.
That does not automatically mean rents go up.
But if the number of rental properties grows more slowly while the number of people looking for somewhere to live keeps growing, tenants have fewer properties to choose from.
That is when rents can come under more pressure.
A landlord cannot simply decide to increase the rent by $50 a week and expect someone to pay it. The market determines what a property can actually rent for.
If there are plenty of properties available, landlords have to compete for tenants. If there are very few properties and lots of people looking, tenants have much less choice.
The government is trying to push investors towards new homes
This is an important part. Negative gearing is not being removed completely. From July 2027, investors will still be able to negatively gear eligible new builds.
The government’s argument is that if investors are going to receive a tax benefit, it is better for that investment to help create new housing rather than have investors compete with home buyers for existing houses.
That makes sense in theory. The problem is that building new homes is already difficult.
Land is expensive. Construction costs are high. Projects take time. Developers are struggling to make some projects financially viable.
So encouraging investors to buy new properties only works if there are enough new properties being built for them to buy.
We already have a housing shortage
Australia needs a lot more homes, and construction is already struggling to keep up.
The government has a target of 1.2 million new homes over five years.
The latest industry modelling estimates the changes could mean another 10,700 dwelling starts do not happen between 2026–27 and 2029–30.
That is not 10,700 homes disappearing from the market tomorrow. It is an estimate of homes that would otherwise have been started over several years.
But when the country is already struggling to build enough housing, adding another barrier to construction is not ideal.
And the rental market is where that shortage eventually shows up.
Rents are already rising
It is important not to blame the current rise in rents on negative gearing.
The main changes have not started yet, and rents were already increasing before the new rules were announced.
PropTrack data showed national rents rose 3.1% over the three months to June, adding about $21 a week to the typical asking rent.
That $21 rise has already happened, and it has a lot more to do with the existing shortage of rental properties than a tax rule that has not yet taken effect. It should not be confused with the $10 a week figure from the modelling, which is a separate estimate of what the tax changes might add in future.
What the negative gearing changes could do is add another layer of pressure on top, if they result in fewer investors buying rental properties and fewer homes being built.
What this means if you are buying
For investors, the changes make the type of property you buy more important.
An established property bought after the May 2026 cutoff will still be an investment property, but the tax treatment will be different from what investors have been used to.
New builds keep the full negative gearing benefit, which could make them more attractive to some investors.
But I would not buy a property just because of the tax treatment. The property still needs to be ideal and meet expectations.
- Is there strong rental demand?
- Are people moving into the area?
- Is the property something tenants actually want to live in?
- And can you comfortably hold it if interest rates, insurance, maintenance or other costs increase?
Those questions matter whether the property is negatively geared or not.
What I would focus on
I would pay close attention to rental supply. Areas with very little vacant stock, limited new construction and steady population growth are the ones I would be most interested in.
I would also not assume that every investor will leave the market because of these changes.
Properties bought before 12 May 2026 are protected under the existing rules, so those investors keep their current negative gearing treatment.
The bigger change is for someone deciding whether to buy an established investment property after the new rules begin.
That could affect what investors buy, where they buy and how much they are willing to pay.
Final word
The government wants these changes to push more investment towards new housing and make it easier for home buyers to compete with investors. That may happen.
But investors also supply a large amount of Australia’s rental housing. If fewer rental properties are added to the market, tenants have fewer homes to choose from.
The latest industry modelling says the reforms could reduce new housing construction and put more pressure on rents. The government says the effect will be much smaller and that its other housing measures will help make up the difference.
We will not know which estimate is closer until the changes have had time to work through the market.
For now, I would watch the rental numbers, but I would pay even more attention to how many new homes are actually being built.
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